MicroStrategy Should Lend Bitcoin to Boost Yield, Analyst Says
Leveraging Bitcoin Holdings for Increased Yield
MicroStrategy’s strategy of accumulating Bitcoin (BTC) has been a significant factor in the company’s stock performance. According to a Benchmark analyst, the company should consider lending a portion of its Bitcoin holdings to generate yield.
Current Valuation and Future Potential
MicroStrategy’s stock, MSTR, is currently valued at around $153 per share, following a 10-for-1 stock split on August 9. The company’s core business is enterprise software, but its public market valuation largely hinges on its Bitcoin investments, which started in 2020. The analyst suggests that if the company continues to use its balance sheet to acquire more Bitcoin and starts lending out the digital currency, the stock could be worth $215 per share.
Bitcoin as “Perfected Capital”
Michael Saylor, MicroStrategy’s executive chairman, mentioned in a recent podcast that Bitcoin could become a form of “perfected capital.” He envisions it as a store of value that can generate low-risk yield through digital banking services like lending and borrowing.
Financial Performance and Bitcoin Yield
MicroStrategy’s revenue from its core business has been declining year-over-year. However, the company’s focus on Bitcoin has led to a unique performance metric: Bitcoin yield. This metric measures the ratio of Bitcoin holdings to outstanding shares, essentially setting a benchmark for corporate performance.
Recent Financial Moves
On September 20, MicroStrategy completed a $1.01 billion convertible note offering. The proceeds are earmarked for Bitcoin purchases and debt repayment. As a result of retiring $500 million of senior secured notes, the 69,080 Bitcoins pledged as collateral, worth approximately $4.4 billion, became unencumbered.
Opportunities with Institutional Custodians
The proliferation of institutional Bitcoin custodians in the United States provides new opportunities for MicroStrategy. With increasing institutional interest in cryptocurrency and regulatory flexibility from the SEC, the company could potentially lend a portion of its Bitcoin holdings to large institutional counterparties with a high degree of repayment certainty.
Conclusion
MicroStrategy’s strategy of leveraging its Bitcoin holdings has been a key driver of its stock performance. By considering lending a portion of its Bitcoin to generate yield, the company could further enhance its financial performance and stock valuation.
